Stories of local councils across England edging towards, or already in, insolvency have piled up in recent months.

As a business owner looking in from the outside, it can be hard to fathom how organisations charged with essential public services let their finances deteriorate so badly.

Importantly, the unfolding crisis holds a clear warning for businesses should they choose to heed it.

The absence of robust auditing and timely scrutiny has been a major factor in the ongoing struggles, and that lesson is one every company should take to heart.

Were poor audits a cause of the local councils’ collapse?

There are several explanations for why councils are now under severe financial strain, but flawed audit arrangements have undoubtedly played a major role.

When the Coalition Government disbanded the central spending watchdog that once set a unified standard for council audits, the system fragmented.

Councils began appointing private auditors of varying quality, and the results were uneven at best.

In far too many cases, audits were delayed for years, and it was reported that only one per cent of local councils had their 2022-2023 audits published on time.

The consequences of that delay are obvious.

Without prompt, effective audits, there’s less oversight of spending decisions, and risky choices can go unchecked until they compound into a crisis.

The lack of control over money has resulted in “a broken system that is costing taxpayers more money than it was promised to save” as many local councils are effectively operating without audits.

Without oversight, local councils have been struggling to manage their finances, with issues like the SEND time bomb set to make the situation worse in the coming months.

In response, the Government is establishing a new Local Audit Office to try to restore consistent control and oversight.

What should business owners take from this?

While it might not seem immediately apparent how the local council crisis impacts businesses, there are key lessons to learn from the mess.

Councils can appeal to the central Government for bailouts, while your business can’t.

Opting out of regular audits exposes your company to long-term danger without a safety net to catch you when you inevitably fall.

Small errors or weak controls can quickly widen into holes that consume working capital and choke off future investment.

The local councils’ troubles are a stark reminder that inadequate audit arrangements conceal problems until they become existential.

It is also worth noting a secondary lesson among all of this.

A poor-quality audit is almost as damaging as having no audit at all, as this can lull you into a false sense of security.

If your auditor does not perform the role adequately, then you might lose the chance to spot and fix problems early.

If you’re unhappy with the audit service you’re getting, look for a new auditor who will actually do the job properly and apply adequate scrutiny to your business’s finances.

When an audit is completed, it’s important that you don’t let the report sit on the shelf.

Treat audit findings as a practical blueprint that outlines the way to ensure that your business is still going strong in the coming months and years.

To get the most out of your audit, you can seek professional financial advice to ensure that all of the recommendations are implemented in the most optimal way.

Even if your business falls below the mandatory audit threshold, consider commissioning a voluntary audit so you can be sure that your finances are taken care of.

Our team can support you in interpreting audit reports to maximise your business’s financial efficiency.

Audits are one of the best tools to detect issues while they remain manageable, so don’t wait until a gap in oversight becomes a crisis.

The situation facing many local councils is sobering, but it doesn’t have to be the story of your business.

Keep your business in good financial health by speaking to our team today!